Consumers today must be prepared for sudden and unexpected events that place them at risk for a sudden loss. For example, an unexpected accident associated with the consumer's automobile or home may create significant liability for a consumer. Few people have sufficient wealth to protect themselves against such loss. Thus, insurance is an important part of a consumer's financial planning. For example, liability insurance may typically cover an individual for hundreds of thousands of dollars. There are many types of insurance, but most provide a form of risk management to hedge against the risk of a catastrophic loss. In the face of the many common risks associated with daily life—floods, fire, auto accidents, and illness—insurance provides a means for consumers to plan for the future with the assurance of knowing that they are protected should an unexpected loss occur.
Most individuals purchase insurance through an insurer, which is a company that sells an insurance policy. Individuals must pay an amount based upon an insurance rate which is a factor used to determine a premium to be charged for a certain amount of insurance coverage. Individuals typically have several types of insurance to provide coverage for various types of claims.
Thus, most individuals will pay for various types of insurance, typically for decades over the course of a lifetime. If such an individual only files a few claims, then the individual may pay a substantial amount of money that is never recovered in terms of actual losses. For example, an individual may, over 40 years, pay a minimum of $40,000 for automobile insurance, and will typically not recover the amount paid. Many consumers may thus desire to accumulate the means to achieve self-insurance status, in a manner that may allow the consumer to recover the value of the accumulation in the event that the risk of loss is not realized.